Current yields for treasury bond, Financial Management

ACT presently is all-equity financed. This reflects the stance of the former CEO, a dominant personality who stated repeatedly: "I don't want us to be in thrall to the demands of the banks". However, since appointment of a new chief, change is in the wind and the new CEO is obviously thinking about use of debt to augment the present equity finance. In this regard, the CEO has sent you an email that has just reached your inbox, containing the following points:

a) I am aware that ACT is too small to obtain a bond rating, but in 2010 the Federal budget announced plans for a new scheme that will enable small bond issues (at least $50 million) to be listed on the ASX. What requirements would we have to satisfy in order to qualify for listing?

b) If we made an issue with a face value of $50 million for 5 years, what would be the approximate yield required by investors? My friend, who works for PIMCO (Australia), has told me that we would have to offer about 2.5% p.a. above the yield on Commonwealth Treasury Bonds.

[Assume that the bonds would be issued at par, with half-yearly coupons]

c) Pimco has also advised me that there would be issue costs of about 2% of the face value. What impact would that have on an issue?

d) I have heard mention of a 'discount bond'. Would we benefit from this for our bonds? Can you show me how this works?

e) I have seen in recent times that some of the big Aussie banks issued covered bonds, apparently at attractive yields. What are they and are they suitable for us?

To answer the CEO's email, you have researched the current yields for T-bonds, which include the following observations:

maturity

yield

1 year

5.8%

3 years

5.9%

5 years

6.1%

10 years

6.3%

Required:

Write a brief response to the CEO's email, addressing points a) to e).

Posted Date: 2/19/2013 12:19:45 AM | Location : United States







Related Discussions:- Current yields for treasury bond, Assignment Help, Ask Question on Current yields for treasury bond, Get Answer, Expert's Help, Current yields for treasury bond Discussions

Write discussion on Current yields for treasury bond
Your posts are moderated
Related Questions
Why is the coefficient of variation a better risk measure to use than the standard deviation when evaluating the risk of capital budgeting projects? The coefficient of variatio

Q. Nature of Financial Management? Financial Management is an necessary part of Top Management: - In the contemporary business management the financial manager is one of the ac

Explain about the primary and secondary markets. Primary and secondary markets: A primary market is a financial market wherein new matters of financial securities (both s

Q. Show Maximum opportunity cost? If Marton hedges all its awaited dollar income over the next year at US$1.55: £l this will make guaranteed (ignoring other sources of risk) st

Interest rate caps as well as collars are available on the over the counter (OTC) market or may be devised using market based interest rate options. They may be utilize to hedge cu

complete the balance sheet and sales information using the following data: debt to assets ratio 50% current ratio 1.8x total assets turnover 1.5x day sales outstanding 36.5 days (c

Q. Find Capital allowances and associated tax benefits? It is suitable to use the after-tax cost of borrowing as the discount rate since Doe Ltd is clearly in a tax-paying situ

McGovern Company is comparing two disimilar capital structures - an all-equity plan (Plan I) and a levered plan (Plan II).  Under Plan I, the Company would have 700,000 shares of s

• Debtors :- Working Capital tied up in debtors must be estimated on the basis of cost of sales (excluding depreciation): [Cost of goods produces (that is raw materials + wages

What are some of the factors that common stockholders consider when deciding how much, if any, cash dividends they desire from the corporation in which they have invested? Gene